PRESIDENT Rodrigo Duterte has applied a direct veto on five provisions of Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion law, the first phase of his administration’s comprehensive tax reform package.
In his letter to Speaker Pantaleon Alvarez and members of the House of Representatives, Duterte pinpointed five items which might hurt the government’s resolve to fund its social and economic infrastructure that will benefit the poor.
Finance Secretary Carlos Dominguez said with the veto, government revenues should be closer to P90 billion in the first year of TRAIN, instead of the projected P82.3 billion.
The President vetoed Section 6 (F) of the TRAIN law, which provides “reduced income tax rates of employees of regional headquarters, regional operating headquarters, offshore banking units and petroleum service contractors and subcontractors,” which effectively maintains the special tax rate of 15 percent of gross income on the tax rates of employees of multinational companies.
“While I understand the laudable objective of the proposal, the provision is violative of the equal protection clause under Section 1, Article III of the 1987 Constitution, as well as the rule of equity and uniformity in the application of the burden of taxation,” Duterte said.
Explaining why he vetoed the provision, Duterte insisted that given the significant reduction in the personal income taxes, “the employees of these firms should follow the regular tax rates applicable to other individual taxpayers.”
Duterte vetoed a second group of provisions, Section 31 and 33 of the new tax reform law, which provides “zero-rating of sales of goods and services to separate customs territory and tourism enterprise zones.”
Should this provision be applied, Duterte said that this will “go against the principle of limiting the VAT zero-rating to direct exporters.”
“The proliferation of separate customs territories, which include buildings, creates significant leakages in our tax system. This makes the tax system highly inequitable and significantly reduces the reneues that could be better used for the poor,” Duterte said.
As for tourism enterprises, the President said that the provision “actually grants a new incentive to suppliers of registered tourism enterprises.”
He also said the current law allows only duty and tax free importation of capital equipment, transportation and other goods, which could be used to avail of the incentives.
The President also vetoed line 12 of Section 38, providing “exemption from percentage tax of gross sales/receipts not exceeding P500,000.”
Duterte said the exemption will result in unnecessary erosion of revenues for the government, and would lead to abuse and leakages.
“The subject taxpayers under this provision are already exempted from the VAT, thus, the lower three percent tax on gross sales or gross receipts is considered as their fair share in contributing to the revenue base of the country,” he said.
Duterte meanwhile, described as “too general” the fourth group of provisions, line 25 Sec. 43 of TRAIN providing “exemption of various petroleum products from excise tax when used as input, feedstock, or as raw material in the manufacturing of petrochemical products, or in the refining of petroleum products, or as replacement fuel for natural gas fired combined cycle power plants.”
Duterte said that these already cover all types of petroleum products, and exempting them “may be subject to abuse by taxpayers, and thus lead to massive revenue erosion.”
The current tax code, he said, already identifies which petroleum products can be exempted.
Lastly, a fifth group of provisions, lines 20 to 29 of Section 82 providing the “earmarking of incremental tobacco taxes,” will effectively amend the Sin Tax Law, or Republic Act 10351, and if approved, will run against the spirit of the law and hurt the sourcing for the government’s guaranteed funds for universal health care.
“The provision will effectively diminish the share of the health sector in the proposed allocation,” he said.
Duterte thanked lawmakers for the milestone bill, which amends the “outdated provisions” of the National Internal Revenue Code.
“I am very pleased to sign this very important piece of legislation mainly because of my sincere objective to help our poor countrymen and ease the burden of the common taxpayers,” he said.
“This government will do its best to implement this noble objective under the tax reform package while maintaining fiscal discipline and adhering to the true principles of taxation: Fair, simple and efficient,” he added.
Congress is expected to pass next year the balance of one-third—involving provisions on the estate tax amnesty, a general tax amnesty, the proposed adjustments in the Motor Vehicle Users Charge and amendments to the bank secrecy law and automatic exchange of information.
The final ratified version also includes tax administration reforms, such as a mandatory fuel marking program and a system that would enable the Bureau of Internal Revenue to check real time the financial submission of large taxpayers.
The Health department, meanwhile, commended Congress for passing TRAIN, which provides for an increase in taxes for cigarettes and sugar-sweetened beverages that will support programs to promote healthy lifestyles and prevent and control non-communicable diseases.
The law also supports the initiatives of the DoH on lowering the prices of medicines by exempting from the 12-percent VAT all medicines used for diabetes, high cholesterol and hypertension.
World Heaalth Organization also lauded the Philippines for being the first country in Asia to introduce such a landmark tax measure, which imposes a tax of P6.00 or P12.00 per liter on all sweetened beverages, depending on the type of sweetener used.
“With millions of Filipinos who have become overweight and obese, and with diabetes now afflicting millions more of our countrymen, we support a higher pricing policy for less healthy food and beverages as part of a multi-pronged strategy to combat non-communicable diseases,” Secretary Francisco Duque said.
The additional resources generated by this measure can be used to subsidize the national government’s health care reform agenda of providing universal health care to Filipinos. With Macon Ramos-Araneta